Latest Government ETS auction fails to clear

Just days after the newly formed Coalition Government announced that it would stop the current review of the ETS system, ‘to restore confidence and certainty to the carbon trading market’, the fourth and final ETS auction for 2023 has failed to clear, removing 15 million NZU’s (carbon credits), from circulation.

The final auction was widely regarded as a dead rubber, given the aggregation of units across all four failed auctions, and the auction rules that would eventually lead to this fourth failure. In total about 3.75 million units were bid for, the lowest bid to cover ratio yet. Because the clearing price was not met, the entire auction failed to clear. 

The full results can be found here. 

Making the fourth auction even harder to clear, was the new price controls that came into effect in December. This enforced a higher price floor, which was increased to $60, with a two-tiered cost containment price starting at $173. There were an additional 8 million units available above this price. The price floor moved to $64 for 2024 and latest projections put the price floor at $79 in 2028, paving an ascending price of carbon, all else being equal

National states the ETS market should be stable 

This is the first ETS auction since the National party has taken office, and throughout the campaign they outlined the need for a stable carbon price, not only for forestry, but for emitters who purchase NZU’s to offset carbon emissions.

The National lead coalition has also earmarked ETS auction funds for tax cut policies, rather than previously being siloed for climate emergency response funds under the previous Labour government. So it would be safe to assume National party wont wind if the price of carbon moves higher. 

One of the first National/ACT/NZF policy announcements was to stop the ETS Review, which had looked at a number of ways to promote gross emissions reductions, rather than only mass afforestation. This move had seen the price of carbon move from $70/NZU to $76/NZU in the days leading to the fourth auction, giving the market refreshed confidence for forestry moving forward in the ETS.

The National lead coalition has also earmarked ETS auction funds for tax cut policies, rather than previously being siloed for climate emergency response funds under the previous Labour government. So, it would be safe to assume the new Government has an even further incentive for carbon prices. 

What’s that mean for Forestry Investors? 

The reduction of supply of NZU’s following the removal of failed 2023 auctions, will undoubtedly drive a greater level of trade activity in the secondary market, retaining upward pressure for prices.  

Although we would have expected to see greater bid volumes at yesterday’s auction, the lower demand is likely a by-product of participants knowing that the auction was likely to fail. Despite the removal of those 15 million Units, the NZU price has eased to settle around $70.50 following the auction as some profit taking took place.

Looking further out, carbon prices look set to ride a glossy pathway. There is now only one more auction in March, ahead of the May 31st date where emitters are required to surrender NZU’s for annual emissions. This sentiment is shared by many, with some market commentators pointing to a carbon price that exceeds $100/NZU in 2024, surpassing previous highs of $88/NZU.


How can you take part in a journey to higher carbon prices?

Many of the Roger Dickie group of investments have exposure to carbon credits and carbon prices, whether it be through the ownership of liability-free carbon, or through new greenfield forestry investments that sequester carbon to be made available for sale, all while growing high-quality wood products.

Forestry is widely regarded as the most cost-effective sequester of carbon, with our investments typically growing carbon credits at a cost materially less than $30/NZU.

The Awatea Forest Fund is Roger Dickie’s latest investment providing significant exposure to the benefit of forestry. Awatea is a diversified forest fund focused on risk-adjusted and regular returns through the sale of carbon and harvest of forests.

Speak to the team to find out more about the carbon market, and how our forests and our investments interact.


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